An economic analysis of Saudi Arabia

Economy

Saudi Arabia has the biggest free market economic system in the MENA part keeping a 25 % portion of entire Arab GDP. The Kingdom ‘s is located in such a mode that it provides easiness of entree to the European, Asian and African markets. It has a increasingly turning place market ( one-year population growing of 3.5 per centum ) , which is adding to a immature and devouring population with strong purchasing power. Its new Foreign Investment Law allows 100 per centum foreign ownership of undertakings and existent estate. The Kingdom has a stable political environment every bit good as a stable economic environment. Saudi Arabia besides provides universe category substructure.

Saudi Arabia histories for 25 per centum of the universe ‘s oil militias. The Saudi authorities places no kerb on foreign exchange and repatriation of net incomes every bit good as capital. The currency is really stable and there are no foreign exchange limitations, and 100 per centum repatriation of net incomes is allowed. Saudi Arabia allows losingss to be carried frontward indefinitely, therefore relieving the revenue enhancement load for concerns till they turn profitable. Personal income revenue enhancement is zero. Labor cost in about all sectors is non really high. Extra inducements offered to investors include:

Exemption of export goods from storage fees for 10 yearss.

Annual land rent in industrial countries fixed at 2 US cents/square metre.

Decrease in corporate revenue enhancement by 30 per centum. 50 per centum decrease in port fees on all exports.

Exemption of industrial machinery and equipment from responsibilities.

Dubai

S. Arabia

In one million millions

Year

A

FDI

Dubai

FDI

Saudi

FDI

Global

Percentage to

Global

Percentage to

Global

% Change

A

% Change

A

2005

10.4

121.0

746.3

1.40

16.21

–

–

2006

12.6

183.0

934.7

1.34

19.58

0.21

0.51

2007

10.8

243.0

1,070.0

1.01

22.71

-0.14

0.33

2008

22.0

382.2

1,650.0

1.34

23.17

1.05

0.57

Saudi Arabia has programs to put $ 200 billion in the energy sector ( oil, gas, electricity and desalinization and petrochemical industries ) . Global oil companies are besides sing puting $ 100 billion over a period of 20 old ages in the production of natural gas. It is besides expected that $ 6 billion worth of domestic capital will be invested in the touristry sector. Saudi Arabia is a founding member of Convention on Arbitration and is in the procedure of obtaining World Trade Organization ( WTO ) rank. Saudi is besides a member in assorted international and regional organisations. [ 2 ]

Foreign Investment in Saudi Arabia

The new Foreign Investment Law [ 2 ] allows aliens to put in most sectors of the economic system. The jurisprudence has abolished the patron system and enabled foreign investors to ain existent estate for company activities and patronize their foreign employees. The new Real Estate Law allows aliens to ain existent estate except in the two Holy metropoliss of Makah and Medina. The Kingdom is drastically revising its business-related Torahs to increase transparence and beef up the state ‘s planetary fight. The Torahs presently under alteration include the Capital Markets Law, the Companies Law, the Agency Law, the Insurance Law, the Mining Law and the Labor Law. Many other Torahs are presently under alteration with the purpose of fostering the procedure of economic liberalisation. In May 2001 the authorities besides issued guidelines for transparence of economic and financial informations.

Wage Ratess and Labor Regulation [ 2 ]

Saudi Arabia is already basking important success in its new instruction scheme with a farther SAR 12 billion being distributed over the following five old ages. School support has increased coupled with school edifice and instructor enlisting plans. This has led to a phenomenal addition in literacy rates from 33 % in 1970 to 83 % today. The Kingdom allows companies to engage endowment from abroad if need be. There are approximately 6 million skilled and semi-skilled exile workers in Saudi, from senior managerial degree to labourers. Unskilled labour in Saudi Arabia costs US $ 2.77/hr compared to US $ 2.63/hr in Mexico and US $ 22.60/hr in France.

Banking Infrastructure and Financial Markets

Saudi Arabia has established a sound regulative model and fiscal substructure based on coverage criterions comparable to those in major industrial states. The Kingdom ‘s fiscal system consists of the cardinal bank ( SAMA, the Saudi Arabian Monetary Agency ) , the commercial Bankss, the specialized recognition establishments and the stock market. Banking is regulated under the Banking Control Law issued by Royal Decree in 1966. The authorities interest in commercial Bankss is less than 10 % . Adequate liquidness enables financing at competitory rates. Foreigners can put in the stock market through investing financess. The Saudi stock market is the largest in the part. The Saudi Riyal has a strong record of stableness and rising prices rates in Saudi Arabia are really low.

Incentives to investors [ 3 ]

Saudi Arabia is a signer to assorted regional bureaus vouching a flat playing field to foreign investors. It is a member of the Multilateral Investment Guarantee Agency ( MIGA ) . The Kingdom, hence, ensures the same intervention, protection and inducements accorded to a national capital. The pre-investment aid provided by SAGIA and other authorities bureaus includes assisting foreign investors prepare feasibility surveies for industrial undertakings. They besides provide information and statistics for investing undertakings within the range of Saudi Arabia ‘s development programs. Saudi Arabia offers the universe ‘s most competitory energy monetary values to investing undertakings. As such, Saudi Arabia continues to be a natural pick for investors in all energy-intensive industries.

A comparative survey based on the Ease of Business Report [ 7 ] clearly shows the greater challenges that an investor faces while establishing a Business in UAE as compared to Saudi Arabia. The clip required to Get down a Business is a competitory advantage that an investor has in Saudi Arabia as compared to UAE. In add-on to that, Saudi Arabia provides better investor protection as compared to UAE.

Another of import thing to observe is that while it takes merely a twelvemonth and half to go out a concern in Saudi Arabia, it takes, around 5 old ages to make the same in UAE. The higher cost and lower Recovery rate in UAE is besides something that can be a hindrance to investors who are more risk averse and wish to go out in instance things do n’t work out.